Grenade energy drink litigation raises two key points

Where: The Intellectual Property Enterprise Court (“IPEC”) of the High Court of Justice, UK.

When: 10 March 2016.

Law stated as at: 3 May 2016.

What happened:

A recent hearing for summary judgment in the IPEC in a trade mark infringement and passing off case led to personal liability for a sole director.

Grenade (UK) Limited (“Grenade UK”) is the owner of two registered EU trade marks for its sports performance and energy products. These consist of the word mark GRENADE, and the company’s logo (a stylised version of the word “Grenade”, with a grenade replacing the letter “A”).

Grenade Energy launches product; Grenade UK launches proceedings

A second company, Grenade Energy Ltd (“GEL”) had launched its own energy drink brand called “Epic Energy”, and was using the name “Grenade” in the marketing of the product. Grenade UK started trademark infringement and passing off proceedings both against GEL and also directly against its sole shareholder and director.

At the time of the hearing, the defendants had already admitted trademark infringement and passing off in respect of their use of the “Grenade” name. They had also admitted that this constituted a misrepresentation, and that Grenade UK had goodwill in its business associated with its registered mark (two of the three elements to prove the tort of passing off, as set out in Reckitt & Colman Ltd v Borden Inc [1990] 1 All E.R. 873 (the so-called Jif Lemon case).

However the defendants sought (1) to have the application for summary judgment struck out, because they did not consider there to be any loss or damage (the third and final element in Jif Lemon) and (2) a declaration that the second defendant, the director/shareholder, was not jointly liable with his company, GEL.

It was not a good day for the defendants, as Mr Justice Hacon found against them on both counts.

Grenade Energy causes damage

As GUK had admitted that Grenade UK had goodwill in their mark and that GUK’s actions had constituted a misrepresentation, the judge felt that it was “inevitable” that Grenade UK would suffer some form of damage, either in respect of loss of sales, or in respect of loss of control of its goodwill.

Further credence was lent to this by Grenade UK producing documentary evidence of GUK’s brand being exhibited at a trade show using the “Grenade” name, and a subsequent email from a supplier demonstrating actual confusion between the brands following the same trade show. Grenade UK’s claim that it had suffered and was likely to suffer damage was therefore upheld.

… and collateral damage

The more interesting point, however, was that the sole shareholder and director of GUK was found to be jointly liable with Grenade.

In so finding, Mr Justice Hacon made reference to the leading case of Sea Shepherd UK v Fish and Fish Ltd [2015] UKSC 10; [2015] AC 1229 (concerning the activities of the marine conservationist/activist group Sea Shepherd), which sets out the test for when an alleged joint defendant may be found to be liable in the law of tort. The judge quoted his own summary of the test from his judgment in Vertical Leisure Ltd v Poleplus Ltd [2015] EWHC 841 (a passing off case concerning pole-dancing equipment) as follows:

“[…] in order to fix an alleged joint tortfeasor with liability, it must be shown both that he actively co-operated to bring about the act of the primary tortfeasor and also that he intended that his co-operation would help to bring about that act […]”

On the basis that GUK was entirely under the control of its sole director and shareholder, this raised a presumption that all acts of GUK were solely instigated by the sole director/shareholder. The judge’s view was that this meant that, to avoid liability, the sole director/shareholder would have needed to show why the acts were not initiated or controlled by him.

This had not been done, therefore the presumption had not been displaced and the defendants’ application was also unsuccessful on this point.

Why this matters

This decision, (and the Sea Shepherd Supreme Court case which it follows), should be required reading for any “one man band” companies. The courts have identified significant limitations on the extent to which an individual with a dual role as director and shareholder of his/her own company can be insulated from the tortious acts of that company. This is something that sole traders considering the pros and cons of incorporation may wish to bear in mind – although incorporation may of course nonetheless assist in limiting personal liability in other arenas such as contract law